Q&A: What the Lloyds rights issue means for you

What is the significance of Bank of England governor Mervyn King (below) revealing the £62bn loans to HBOS and Royal Bank of Scotland?

A year ago, if King had admitted that the two banks were receiving life support on such a scale, there could have been even more panic and a run on both banks. His admission now of the operation that went on behind the scenes is a sign the authorities believe the crisis is abating.

If that is the case, why is the taxpayer buying another £5.8bn Lloyds shares?

Saddled with bad debts racked up by HBOS, Lloyds needs to raise record amounts of cash to bolster its capital cushion and avoid entering the government's asset protection scheme.

As a private investor in Lloyds, should I take up my rights?

If you don't take part, your shareholding will proportionately shrink – as the new shares will make up 58% of Lloyds' total share capital.

What are the risks?

Lloyds is banned from paying dividends until 2012. Even if the UK recession is ending then, the next few years will be tough. Some experts believe the commercial property market could face another downturn – and this is an area where HBOS got heavily involved before the financial crash. Some analysts also believe the current stock market rally has gone too far – the FTSE 100 is around 5325 points, up 20% since mid-July. If there's going to be a correction, it could make sense to sell your rights now.

I can't afford to take up my rights. What do I do?

As a shareholder, you can sell your right to buy new shares to someone else – either to a stockbroker or to Lloyds. If you don't do anything at all, Lloyds will sell your allocation of shares on your behalf and send you any profits by cheque.

How long do I have to decide?

Lloyds has set a deadline of 11 December for shareholders to tell it whether they will be taking part.